Partner Insight: Small scheme transactions - A year of evolution

This is a year where two words have dominated proceedings for smaller transactions ‘streamlined’ and ‘exclusivity’

clock • 4 min read
Dyfan Jones, associate partner at Aon
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Dyfan Jones, associate partner at Aon

With the whole settlement market extremely busy, and insurer capacity to provide quotes needing to be carefully managed, insurers and advisers alike have needed to work harder than ever to evolve and ensure that smaller transactions have remained viable.  

This hard work has paid off. In fact, this section of the market has flourished, and we have continued to see a steady flow of smaller scheme transactions being completed at attractive levels of pricing. This has largely been achieved by the implementation of two things:

1.       Development of insurer processes: Several insurers introducing new simplified pricing mechanisms which have ‘streamlined' the insurer's internal processes and reduced the resource required to provide a quotation.  While this process is simplified from the insurer's perspective, it does require more work up front for schemes, through the provision of data and benefits in a pre-specified format (which varies from insurer to insurer).

2.       Targeted market approaches (Exclusivity): Schemes are increasingly selecting a single insurer to work with on an exclusive basis, with that insurer providing a quotation for consideration (rather than a traditional auction-style process where multiple insurers might provide a quotation). In the past, this has typically been a requirement from insurers for sub-£10 million transactions, but insurers are now seeking exclusive broking processes on a wider range of transactions. This increases the certainty of a transaction completing, subject to them putting forward compelling pricing, and therefore allows insurers to prioritise resources.

In our recent Bulk Annuity Insurer research, all insurers indicated that their resource  is stretched more than ever before. However, many insurers are working hard to develop and refine their own internal processes to allow them to continue to service smaller transactions.

Further market segmentation  

In previous years insurers have typically viewed the smaller end of the market as being transactions of c.£100 million or less.  The recent changes in market dynamics have seen this figure creep up to £150 million, with further differences in broking approaches being preferred by insurers within that range too.

As a result of this, the segment of the market where we have seen some of the largest changes over 2023 is for transactions of less than c£50 million.   The main areas of change here are as follows:

·       Some insurers who have traditionally been highly active at this end of the market are becoming increasingly selective, because of the pressure on where to deploy their resource

·       Exclusivity has increasingly been the ‘norm' for transactions of this size during 2023. While we have completed transactions of this size over 2023, with multiple insurers providing a quotation, there has been an increasing trend towards exclusive processes (with attractive pricing being put forward in both scenarios)

·       A significant number of cases of this size which successfully transacted during 2023 will have done so using one of the new insurer simplified processes.

For schemes that are between £50 million to £150 million, the preferred broking process has been more case specific. Insurers continue to triage cases before quoting and while competitive auction processes remain more common here (particularly as the transaction size increases), there are some instances where insurers may require either exclusivity and/or to use their own simplified processes, to get internal sign-off to provide a quotation.  

 Looking forward

Looking forward to 2024, if you asked me to pick what I think the word for the year might be, I think it will be ‘flexibility'. 

The combination of the simplified insurer pricing processes and exclusivity has introduced greater complexity into the broking process, particularly for smaller schemes, requiring more up-front decisions to be made by trustees/sponsors. Schemes will need to have flexibility in both their approach to market and the timing, so that they can adapt and work closely with insurers

This all means that schemes need to be better prepared and nimbler with their decision making.  This may mean changing course, having to make decisions earlier than planned or reformatting data and benefits to fit the templates required by a certain insurer.

The message from insurers for small scheme transactions is clear - work with us so that we can help you.

It is important that you work with a specialist settlement adviser to set your strategy early and focus your energies where it will have the most impact on getting insurer engagement and ultimately completing a transaction.

At Aon, we have a dedicated team who specialise in smaller transactions via our Pathway solution, allowing us to work closely with the insurers as they develop their new process, ensuring that our clients achieve the best possible outcomes for their schemes.

Nearly £2 billion of liabilities have been successfully transacted using Pathway since 2014, and we continue to adapt and refine the process to ensure it continues to provide the best solution for clients in an ever-changing market.

Further information on our Pathway services, including our forthcoming small schemes webinar can be seen here.

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